Monday, January 12, 2009

Trading Key Support/Resistance Levels

POT gapped down and carved out a wide range bearish stick. Place the Fib. lines from the previous day high to the ORL or the key support level as I did here. $80.00 is a psychologically significant round number and was a key support level on Thursday's gap down as price consolidated at that level for an hour before filling the gap.

Look for confirmation on the lower timeframe as I did on the 5 min. which showed a weak open followed by a sideways bull/bear battle at the S2 level (red dotted line). When it became obvious the bears were winning, I jumped in.

SRS was a gapper which saw ripping on the TI scanner in early trade. Price retraced to a key support level just on the edge of the R-zone. This level was confirmed on the 5 min. which showed price holding and reversing at R1 with support from the rising 20 EMA. I placed my Fib lines from the ORL to the early swing high because this ETF broke resistance on Friday afternoon and setting them from PDL to ORH could result in an overly optimistic target.

The NASDAQ futures trade is not as obvious, so it's important to wait for a meaningful signal. In this case we had two inside bars (NR7) on declining volume - price/volume contraction ahead of expansion.

I like to lock in some profits when price is in the R-zone. Why risk a reversal without banking some coin? It goes back to my theory that price will consolidate after 3 WRBs. If the bars aren't wide, add an extra bar if you can. Inside bars don't count.

Jamie, how to set initial target for stocks that open below the PDL, bases at the PDL, breaks and enters the previous day range, example - GS today (Jan. 13). It based below PDL, breaks PDL entering the previous day range, retests resistance (PDL) and moves up. What should be the target/s for these types of trades? Any pointers that I need to remember while taking these types of trades?